Close a Credit Card

I want to close a credit card. Does closing the card hurt my credit?

I want to cancel a credit card because I just don't need this many. I was told that canceling a card is bad for your rating. I got a letter from the card company and if I refuse to accept the new high rates, I can't make any new purchases again. I don't owe them or anyone else any money. Will they cancel the card automatically if I refuse the new terms. What is the best way to get rid of this card without negatively affecting my credit rating? Thank you, Carl

Published: Sep 15, 2010

Thank you for the excellent question about finding the right way to close a credit card and how closing cards impact your credit score.

If you are not carrying a balance on your card now and do not plan to carry a running balance, there is no reason for you to hurry to close the card. In fact, as your question indicates, there can be a negative impact on your score from closing a card. It makes good sense to be cautious in closing a card and carefully choosing which card, if any, to close. The exact impact on your score will depend on what other accounts appear on your credit report and the length of time that you have had the account in question.

Anytime you close a card you are reducing the amount of credit that you have been granted. This can harm your credit utilization and lower your core. Your credit score is never hurt by having a lot of credit. The only harm can be in how you use the credit and whether you opened a number of lines in a short time period.

Reasons to NOT close a credit card

In general, it is not a good idea to close a card if any of the following apply.

1. Your card has a balance on it. When you close a card with a balance on it, the available credit line shows as $0, making it look like you have exceeded your credit line. This negatively affects your credit utilization and will degrade your score.

2. Your card is a card you have had a long time. Part of your score is determined by the length of time you have had open accounts with a creditor. If you close a card that is your oldest credit card, even if it has no balance, you can hurt your score.

3. Your card is your only card or one of only a few cards you have. You do not want to leave yourself without active accounts. You can damage your score if you do not have a number of active accounts. Accounts can include your mortgage, a car payment, credit cards, or other types that may report to the bureaus, such as a student loan payment. You should have three active accounts, at a minimum.

4. Your other cards are maxed out. You do not want to close an account and leave yourself with no other available credit, in case of an emergency.

The most minimal impact on your credit score will be when you close cards you have opened recently on which you are not carrying a running balance.

How to close a credit card

Whenever you choose to close a credit card, it is a good idea to send a request to close the account in writing to the card issuer. I advise that you ask for a letter back indicating that the account was closed in good standing. The Fair Isaac Co, who compile the FICO scores that the three main bureaus use, say that it does not make a difference if you close the card at your request or if the issuer closes the card. They say that this is a common misconception and that there is no difference between ‘closed by creditor’ and ‘closed by consumer.’

If you are carrying a balance and the interest rate is about to be hiked by the creditor, you have the right to continue paying your current balance as agreed and not suffering the interest rate increase. To avoid the increase, you have to close the card. Even if there were to be a negative credit impact, depending on the size of the balance and the new interest rate, it may make more sense to close the card and freeze the interest rate.